Circular No. 179/1998/TT-BTC guides the accounting for value-added tax and corporate income tax applicable to insurance businesses.

CIRCULAR

CIRCULAR NO. 179/1998/TT-BTC OF DECEMBER 26, 1998 OF THE MINISTRY OF FINANCE GUIDING ACCOUNTING FOR VALUE ADDED TAX AND ENTERPRISE INCOME TAX APPLICABLE TO INSURANCE BUSINESSES

- Pursuant to the Law on Value Added Tax (VAT) No. 02/1997/QH9 dated May 10, 1997;

- Pursuant to Decision No. 1296 TC/QD/CĐKT dated December 31, 1996 of the Minister of Finance promulgating accounting regulations applicable to insurance enterprises;

- Pursuant to Circular No. 100/1998/TT-BTC dated July 15, 1998 of the Ministry of Finance guiding accounting for VAT and enterprise income tax;

- Pursuant to Circular No. 174/1998/TT-BTC dated December 24, 1998 of the Ministry of Finance guiding the application of VAT and enterprise income tax for insurance business activities;

To ensure proper accounting for VAT and enterprise income tax in accordance with tax calculation, declaration, and payment procedures, the Ministry of Finance guides accounting for VAT and enterprise income tax for insurance businesses as follows:

I - GENERAL PROVISIONS:

1. Insurance enterprises must organize accounting for VAT and enterprise income tax in accordance with current accounting regulations and the provisions of this Circular.

2. Revenue from insurance activities and the value of materials, goods, services, and fixed assets purchased shall be accounted for as follows:

a- Accounting for revenue from insurance business activities:

- For insurance services subject to VAT, sales revenue is the premium without VAT.

- For services sold on behalf of foreign entities,... sales revenue is the selling price of goods and services without VAT.

- For fees or commissions received, revenue is the total amount received before any cost deductions.

- Income from other activities outside insurance operations is reflected in Account 711 - "Financial Activity Income," and Account 721 "Unusual Income" includes interest from loans, bank deposits, treasury bills, and rental income from fixed assets... that the insurance enterprise must collect during the accounting period. Financial activity and unusual income are total income (excluding VAT - for activities subject to VAT).

b- Accounting for the value of materials, goods, fixed assets, and services purchased:

- The value of materials, goods, fixed assets, and services purchased for insurance services and other business activities subject to VAT is recorded at the purchase price excluding VAT (in cases where there is a VAT invoice or special receipt). In cases where materials, goods, fixed assets, and services are purchased without a VAT invoice, they are recorded at the payment amount, and input VAT cannot be deducted.

- The value of materials, goods, fixed assets, and services purchased for insurance services and other business activities not subject to VAT is recorded at the payment amount (including input VAT).

3. Accounting accounts:

a- Rename Account 511 "Actual Revenue" to Account "Sales Revenue."

Account 511 is used to reflect sales revenue and net sales revenue from insurance business activities and other business activities of insurance enterprises carried out within a business period.

Sales revenue reflected in Account 511 includes the amount receivable for original premiums, reinsurance premiums, commission on ceded reinsurance, agency fees for appraisal, claims settlement, third-party recovery, full compensation processing, and other revenues related to insurance activities.

For insurance contracts agreed to pay in installments, sales revenue reflected in Account 511 is the amount receivable for each period. If the insured pays in advance for multiple years, sales revenue reflected in Account 511 is the entire amount received during the period.

Net sales revenue (also known as gross sales revenue) is sales revenue after deducting ceding commissions, refunded premiums, commission on ceded reinsurance, reduced premiums, and other deductions according to financial regulations.

b- Amend the content reflected in Account 513 - Occurrence Revenue:

Account 513 - Occurrence Revenue: Used to reflect the existing balance and changes in occurrence revenue from insurance contracts implemented over multiple business periods by insurance enterprises.

Account 513 "Occurrence Revenue" is only used when the insurance contract between the insurance enterprise and the customer is executed over multiple business periods. Each accounting period, the revenue receivable for each period is transferred to Account 511 "Sales Revenue."

Revenue reflected in Account 513 "Occurrence Revenue" is the premium without VAT (for insurance services subject to VAT). Output VAT is determined and recorded based on the VAT invoice for each accounting period when transferring revenue receivable for each period to Account 511.

Structure and content reflected in Account 513 "Occurrence Revenue":

Debit Side: Transfer of revenue for each period to Account 511 - Sales Revenue, the portion of premiums receivable for the accounting period (without VAT).

Credit Side: The amount of occurrence revenue generated according to insurance contracts executed over multiple business periods signed between the insurance enterprise and the customer (at the price without VAT).

Credit Balance: Unpaid insurance occurrence revenue (price without VAT).

Account 513 has three second-level accounts:

Account 5131 - Original Insurance Revenue: Reflects the original insurance revenue receivable from policyholders for insurance contracts executed over multiple accounting periods.

Account 5132 - Reinsurance Revenue: Reflects the reinsurance premium revenue receivable from ceding insurers for insurance contracts executed over multiple accounting periods.

Account 5133 - Ceded Reinsurance Revenue: Reflects the commission revenue receivable from reinsurers due to the transfer of ceded reinsurance premiums under insurance contracts committed to execute over multiple business periods.

II - ACCOUNTING FOR VALUE ADDED TAX

1- Accounting for deductible input VAT:

- When purchasing materials, goods, fixed assets, services for insurance services and other business activities subject to VAT, based on VAT invoices or special documents, accountants record the value of materials, goods, fixed assets, and services at the purchase price excluding VAT, noting:

Debit accounts 152, 153, 211, 642, etc. (at the purchase price excluding VAT)

Debit Account 133 - Deductible VAT

Credit accounts 111, 112, 331, etc. (total payment amount)

- When purchasing materials, goods, fixed assets, services used for non-VAT taxable insurance services or for public service activities funded by other sources, the input VAT cannot be deducted and is not recorded in account 133. The input VAT that cannot be deducted is included in the cost of purchased materials, goods, fixed assets, and services.

- For materials, goods, and services purchased simultaneously for both VAT taxable and non-VAT taxable business operations, only the input VAT of materials, goods, and services used for VAT taxable business operations can be deducted. In this case, the insurance company must separately account for deductible and non-deductible input VAT; if separate accounting is not possible, the deduction shall be made according to the ratio of VAT taxable revenue to total revenue of the enterprise.

- Record deductible input VAT for actual compensation payments within the scope of the insurance company's liability:

+ For compensation payments determined based on VAT invoices for goods and services presented by the claimant organization or individual as evidence for determining the compensation amount, the insurance company may deduct VAT at the percentage corresponding to the compensation amount as stated in the compensation settlement report. In this case, when an accident or loss occurs, based on the compensation settlement notice and related documents, the accountant records the basic insurance compensation expense, noting:

Debit account 6241 - Direct operating expenses for basic insurance

Debit account 133 - Deductible VAT (1331) (VAT amount deductible according to the VAT invoice)

Credit accounts 331, 111, 112, etc. (Total compensation payment amount)

+ The VAT amount listed on invoices for goods and services not within the scope of the insurance company's liability cannot be deducted as input VAT.

+ For other compensation payments without VAT invoices for goods and services from the claimant organization or individual, the insurance company may deduct input VAT at a rate of 5% of the actual compensation paid to customers without VAT invoices for VAT taxable transactions. In this case, when an accident or loss occurs, based on the compensation settlement notice and related documents, the accountant records the direct operating expenses for basic insurance compensation, noting:

Debit account 624 - Direct operating expenses for insurance business

Debit account 133 - Deductible VAT (1331) (Input VAT deductible at a rate of 5% of the actual compensation paid to customers without VAT invoices)

Credit accounts 331, 111, 112, etc.

Monthly, insurance companies and their subsidiaries base their records on VAT invoices for goods and services purchased from organizations or individuals receiving compensation, and compensation payment vouchers, to prepare a detailed list of actual compensation payments according to prescribed regulations.

2- Accounting for revenue from insurance business operations and output VAT:

2.1- Basic insurance business operations:

- When revenue from basic insurance premiums receivable from policyholders arises, the accountant records:

Debit account 131 - Receivables from customers (detail accounts 1311, 13111)

Credit account 511 - Sales revenue (basic insurance premium amount excluding VAT) (51111)

Credit account 3331 - VAT payable (33311) (for VAT taxable insurance services)

- When revenue from inspection fees receivable from customers related to basic insurance business operations arises, the accountant records:

Debit account 131 - Receivables from customers (13111, detail 131112)

Credit account 511 - Sales revenue (51112)

Credit account 3331 - VAT payable (33311)

- When revenue from sales already compensated at 100% arises, the accountant records:

Debit account 131 - Receivables from customers (1311)

Credit account 511 - Sales revenue (51113)

Credit account 3331 - VAT payable (33311)

- When other revenues arise from basic insurance business operations besides those mentioned above, the accountant records:

Debit account 131 - Receivables from customers (13118)

Credit account 511 - Sales revenue (51118)

Credit account 3331 - VAT payable (33311)

- When basic insurance premiums are paid, the accountant records:

Debit accounts 111, 112, 331, etc.

Credit account 131 - Receivables from customers (1311)

- In cases where the insurance contract between the insurance company and the policyholder spans multiple years but payment is agreed upon periodically, the accountant records:

+ When revenue from basic insurance premiums receivable from policyholders according to the contract arises, the accountant records:

Debit account 131 - Receivables from customers (13111)

Credit account 5131 - Basic insurance revenue (51311) (basic insurance premium amount excluding VAT).

Periodically, based on the basic insurance premium receivable during the period according to the contract, the accountant records:

Debit account 5131 - Basic insurance revenue (51311) (basic insurance premium amount excluding VAT)

Credit account 511 - Sales revenue (51111) (basic insurance premium amount excluding VAT)

Simultaneously, the accountant records:

Debit account 131 - Receivables from customers

Credit account 3331 - VAT payable (33311) (output VAT for VAT taxable insurance services)

When the policyholder pays the basic insurance premium periodically, the accountant records:

Debit accounts 111, 112, 331, etc. (total payment amount including VAT for VAT taxable insurance services)

Credit account 131 - Receivables from customers

+ For insurance contracts where the policyholder pays in advance for multiple years, based on the VAT invoice for the total amount paid in advance according to the contract, the accountant records:

Debit account 131 - Receivables from customers (13111)

Credit account 511 - Sales revenue (51111) (basic insurance premium amount excluding VAT)

Credit account 3331 - VAT payable (33311) (output VAT for VAT taxable insurance services)

Simultaneously, the accountant records:

Debit accounts 111, 112, 331, etc.

Credit account 131 - Receivables from customers (13111) (total amount received)

2.2- Reinsurance business operations:

When revenue from fees for accepting reinsurance and other receivables arises, record:

Debit Account 131 - Receivable from customers (1312)

Credit Account 511 - Revenue from sales (5112)

In cases where the contract on receiving reinsurance premiums between the reinsurer and the ceding company is executed over multiple years, record:

+ For insurance contracts that agree to pay in installments, when revenue from reinsurance premiums receivable from the ceding company arises according to the contract, the accounting unit of the reinsurer records:

Debit Account 131 - Receivable from customers (1312)

Credit Account 513 - Revenue recognized (5132 - Reinsurance premium revenue)

Periodically, based on the amount of reinsurance premiums receivable during the period according to the contract, record:

Debit Account 513 - Revenue recognized (5132)

Credit Account 511 - Revenue from sales (5112)

When collecting the reinsurance premium from the ceding company, record:

Debit accounts 111, 112, 331, etc.

Credit Account 131 - Receivable from customers (1312)

+ For reinsurance contracts where the ceding company pays in advance for multiple years, based on the amount of reinsurance premiums, record the revenue realized during the period:

Debit Account 131 - Receivable from customers (1312)

Credit Account 511 - Revenue from sales (5112)

Simultaneously record the amount paid:

Debit Accounts 111, 112, 331

Credit Account 131 - Receivable from customers (1312)

2.3- Reinsurance cession business activities:

When revenue from reinsurance commission and other receivables from the reinsurer arises, record:

Debit Account 131 - Receivable from customers (1313)

Credit Account 511 - Revenue from sales (5113 - Reinsurance cession revenue).

In cases where the contract on transferring reinsurance premiums between the ceding company and the reinsurer is executed over multiple years, record:

+ For insurance contracts that agree to pay in installments, when revenue from reinsurance commissions receivable from the reinsurer arises according to the contract, the accounting unit of the ceding company records:

Debit Account 131 - Receivable from customers (1313)

Credit Account 513 - Revenue recognized (5133 - Reinsurance cession revenue)

Periodically, based on the amount of reinsurance commissions receivable during the period according to the contract, record:

Debit Account 513 - Revenue recognized (5133)

Credit Account 511 - Sales Revenue (5113)

When collecting the reinsurance commission, record:

Debit accounts 111, 112, 331, etc.

Credit Account 131 - Receivable from customers (1313)

+ For insurance contracts where the reinsurer pays in advance for multiple years, based on the amount of reinsurance commissions already paid, the accounting unit of the ceding company records the revenue realized during the period:

Debit Account 131 - Receivable from customers (1313)

Credit Account 511 - Sales Revenue (5113)

Simultaneously record the amount paid:

Debit accounts 111, 112, 331, etc.

Credit Account 131 - Receivable from customers (1313)

2.4- Accounting for refunds of original insurance premiums:

Based on the customer's request and the insurance company's acceptance regarding the amount of original insurance premiums to be refunded in case of contract changes that the customer has signed with the insurance company and paid for, record:

Debit Account 531 - Sales returns (5311) (the amount of original insurance premiums excluding VAT)

Debit Account 3331 - VAT payable (33311)

Credit Account 331 - Payable to suppliers

When refunding the original insurance premiums to the customer, record:

Debit Account 331 - Payable to suppliers (33116)

Credit Accounts 111, 112, or

Credit Account 131 - Receivable from customers (1311) (in the case of offsetting in payment)

3- Financial reporting:

The financial reporting system applicable to insurance companies is implemented according to the financial reporting regulations issued by Decision No. 1296 TC/QĐ/CĐKT dated December 31, 1996 and Circular No. 100/1998/TT-BTC dated July 15, 1998 of the Ministry of Finance, and amendments and supplements provided in this Circular as follows:

3.1- Balance Sheet (Model B01-DN)

The indicator "Unpaid revenue" (code 136) is used to reflect the revenue from insurance arising from contracts signed between the insurance company and policyholders but not yet due for payment.

The data for this indicator is based on the credit balance of Account 513 "Revenue recognized" in the ledger at the end of the accounting period.

3.2- Report on business results (Model B02-DN)

The indicators in Part I - Profit and Loss must comply with the financial mechanism's provisions on reasonable revenue and expenses for calculating taxable income from insurance business and other business activities.

III - IMPLEMENTATION:

Insurance companies are responsible for implementing and guiding subordinate units within the company to perform VAT accounting and corporate income tax accounting according to this Circular.

This Circular takes effect from January 1, 1999, and other contents regarding VAT accounting and corporate income tax not covered in this Circular shall be implemented according to the current accounting regulations.

During implementation, if there are any difficulties, insurance companies are requested to report to the Ministry of Finance for consideration and resolution.